Occupational pensions law (LPP): the essentials explained

The LPP: a cornerstone of the Swiss pension system

The Occupational Pensions Act (LPP) governs the second pillar of the Swiss pension system. Its primary objective is to complement OASI benefits in order to help insured individuals maintain their standard of living in retirement.

Together with the 1^st pillar (OASI) and the 3^rd pillar (individual pension provision), the LPP forms one of the three foundations of the Swiss retirement system. 

Who is covered by occupational pension provision?

The LPP mainly applies to employees whose annual income exceeds the statutory threshold. It is funded jointly by the employer and the employee.

Affiliation with a pension fund becomes mandatory once the legal conditions are met. However, the exact structure of the pension plan may vary depending on the employer and the pension foundation chosen.

The objectives of the LPP

Occupational pension provision serves several essential purposes:

• to provide supplementary income alongside OASI pensions,

• to cover the risks of disability and death,

• to enable the gradual accumulation of retirement capital,

• to ensure a structured and secure framework for retirement savings.

Overall, the first and second pillars are designed to cover around 60% of final salary, highlighting the importance of long‑term planning.

Mandatory and extra‑mandatory pension provision

The LPP distinguishes between two levels of pension provision:

• the mandatory portion, defined by law and subject to strict parameters,

• the extra‑mandatory portion, which allows employers to offer more extensive benefits.

The extra‑mandatory component provides greater flexibility, particularly in terms of benefit levels, contribution rates and investment strategies, and plays a key role in optimising pension provision.

Rights and options under the LPP

Occupational pension provision grants insured individuals a range of rights, including:

• the payment of a retirement pension,

• the withdrawal of capital (in full or in part),

• the possibility to make voluntary buy‑ins,

• benefits in the event of disability or for surviving dependants.

These options are governed by law as well as by each pension fund’s own regulations, making it essential to understand the specific rules that apply.

The LPP within a holistic wealth strategy

The LPP should not be considered in isolation. It forms part of a broader wealth‑planning perspective, taking into account:

• family situation,

• retirement plans (early or standard retirement),

• tax considerations,

• overall wealth,

• the use of third‑pillar solutions.

A sound understanding of the LPP is often the first step toward a coherent and effective retirement strategy.